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Queensland Budget 2019-20 Business Update

This budget has been labelled as a big borrowing, a big spending and a big taxing budget.  It is certainly all of those three things.
 
It is not an election budget but it is 100% a budget that is squarely designed to sure up support following significant concern by the State Government over the recent Federal Election wipe out north of Brisbane for Queensland Labor.  This is the context to bear in mind in its framing.
 
Key points to highlight include:
 
Economic growth for 2019-20 will be 3.0%, revised up from 2.75% at the mid-year fiscal and economic review (MYFER), which is good news.  However a hefty portion of this growth will rely on exports and domestic economic activity will be subdued. Employment will continue to grow but at 1.25% compared to MYFER’s estimate of 1.75%.
 
There is a surplus of $841 million in 2018-19 which is $317 million higher than at the MYFER in December. The surplus of $189 million for 2019-20 is broadly in line with the MYFER estimate of $193 million. Surpluses are forecast across the forward estimates.
 
Total Government plus Government Owned Corporations (GOCs) debt is rising across forward estimates. The debt to revenue ratio is increasing from 105.5% ($71.4b) in 2018-19 to 122.5% in 2022-23 ($90.7b). This contrasts with NSW (85%) and VIC (76%) the two AAA rated states. Queensland would need to pay-off approximately $11 billion in debt to get our AAA credit rating back.
 
The infrastructure spend of $49.5 billion across the next four years and $12.9 billion in 2019-20 will support jobs. However infrastructure spend as a percent of GSP at the MYFER for 2019-20 was 2.9% and it will now only be 2.7%. This will hover between 2.6% to 2.7% for the next several years well under the longer term trend. 
 
The flagship business policy in this State Budget is lifting the payroll tax exemption from $1.1 million to $1.3 million for all businesses and a special 3.75% payroll tax rate for regional Queensland businesses (normally 4.75%). This will drive growth & employment. However it is offset by businesses with a payroll above $6.5 million now required to pay 4.95% payroll tax (up from 4.75%).  13,000 business benefit from lower payroll tax and 6,000 lose out from higher payroll tax.
 
Tax revenue in 2019-20 will increase by 8.3% the highest growth since 2013-14. Over the next four years: payroll tax winners save $885 million; payroll tax losers pay an additional $544 million; some property owners through increased land tax will pay collectively another $778 million and the petroleum industry will pay another $476 million (see below for further details).
 
These proceeds are undoubtedly being utilised to fund the infrastructure budget and the continuing increase in public service headcount (up from 229,246 in 2018-19 to 233,637 in 2019-20) to improve hopefully frontline service delivery.  

In closing, the Budget cements what the State Government does well - spending and I don't mean this negatively. It hand on the heart believes this is in the best interests of our economy when nationally and globally things are slowing.  The State Government is taking an approach of priming the Queensland economy through expenditure on infrastructure and frontline services.  However, in doing so, it is also making a controversial call of singling out big business through higher payroll tax, the petroleum industry and higher end land owners to cover the bill.  

These sectors are also key elements of our economy.  It is a gamble of sorts - that the diminished economic activity from these three sectors as a result o these higher taxes will be more than made up by an economy wide Government spending spree.  This is a gamble I would not make and a safer option would be to find a way to make frontline service delivery improve without throwing additional public servants at the problem.

QEAS Business Update: State Budget Special available here

QEAS presentation to the QMCA Breakfast available here 

 

 

 

QEAS preview of the 2019-20 Queensland State Budget

As the foremost instrument of both fiscal and economic management all eyes will be on the State Budget next week. On Tuesday 11th June the Hon Jackie Trad, Treasurer, will be delivering her second State Budget.  The below are key criteria that can be used to objectively assess how good the State Budget is for Queenslanders:

  1. What is the revised surplus for 2018-19?   Is it in line with the December MYFER estimate of $524 million for 2018-19? This is really going to come down to whether the costs of this year’s Northern Queensland floods exceed what will once again be increasing coal royalties.  
  2. What are the surpluses for 2019-20 and across the forward estimates?  Forecast at the MYFER, to be a modest $193 million in 2019-20 and $145 million in 2020-21.  In general I believe there to be a trend of reduction in the surplus sizes as a consequence of an absence of Cross River Rail funding from Canberra but also the bolted on additional expense of public service numbers.   The change in GST carve up receipts is in theory neutral to Queensland.  Any upside will almost certainly be channelled into cost of living sweeteners and other recurrent expenditure.
  3. What is the revised level of taxation and other receipts for 2018-19 and 2019-20?  At the MYFER revenue and tax growth were to be stronger in 2018-19. The revenue windfall in 2018-19 was to be $1.264 billion thanks to coal royalties revised up by $1.8 billion over the next 3 years.  In looking to 2019-20 it is a question of whether coal royalties will continue to lay the golden egg for Queensland.  However there are other favourable trends such as payroll tax (a tax on giving someone a job) and the added State Government’s ‘robin hood’ taxes including the 7% transfer duty surcharge applied to foreign buyers of Queensland property (raising $99m over 3 years) and a new land tax category for 850 large property holdings greater than $10m (raising $227m over 3 years).  Queensland will also have the new waste levy commencing 1 July anticipated to deliver $1.3 billion over coming years.  The downside will be reductions in land tax and duties thanks to a cooling property market. Tax revenue in the MYFER was forecast to increase by 7.2% in 2018-19 and 6.5% in 2019-20.
  4. How much is Government expenditure growing by in 2018-19 and 2019-20 and have they kept a lid on growth?  Expenditure in the MYFER was forecast to grow by 3.8% in 2018-19 and by 1.6% in 2019-20.  This was quite a blow out from the original State Budget where expenditure in 2018-19 was only meant to grow by 1.5%.  This is courtesy of employee related expenses forecast to grow by a whopping 5.8% in 2018-19 and by 3.6% in 2019-20. This is where the State Budget is very exposed. It is difficult to turn off the expenditure tap once on and I can’t see it being done easily. Public service numbers and forecasted headcount are contained in the State Budget and we will need to check these against population growth of 1.75% in 2018-19 and 2019-20. 
  5. What is the budget repair across the forward estimates?  As part of the election, Queensland Labor announced only a modest budget repair of $261 million over the forward estimates.  Election commitments totalled $2.8 billion and total budget repair measures of $3.0 billion in recurrent expenditure savings, tax increases and capital reprioritisation measures were announced. Generally speaking there is risk associated with the 'repair' as what we spend is guaranteed but what we earn is not.
  6. Is government debt rising or falling in 2019-20 and over the forward estimates of the Budget? For example in the MYFER public sector borrowings in 2018-19 were anticipated to be $71.6 billion and by 2021-22 debt will have increased to $83.5 billion.  There is no question debt will be rising it is just a question of whether it will rise faster than committed to in 2018-19 State Budget and at the MYFER.  My pick is we will be taking on more and this was confirmed yesterday by the Treasurer.
  7. What are the economic and revenue forecasts for the next four financial years and are they realistic? In the MYFER, Queensland's economy was forecast to grow by 3% in 2018-19, employment by 1.5% and an unemployment rate at 6.0%.  For 2019-20 GSP is forecast to grow by 2.75%, employment by 1.75% and an unemployment rate of 6%.  Economic growth is one of the largest influences on revenue receipts outside of coal royalties where global demand and commodity prices influence royalty receipts.  Each of these will have assumptions to cross reference against reality.
  8. What infrastructure projects will be announced? According to MYFER, infrastructure spend in 2018-19 is forecast to track at 2.9% of GSP.  However with cross river rail (CRR) now having a shortfall in funding I initially anticipated other infrastructure projects to suffer to sure up the State Government’s flagship CRR.  This will not be the case with the Treasurer confirming they will take on more debt to keep their committed to infrastructure projects underway.  Infrastructure spend as a percentage of GSP is forecast to fall to 2.7% in 2020-21 and 2.5% in 2021-22.  I believe it will go even lower.  Hence the resource sector has been asked to cough up an extra $70 million for a regional infrastructure fund (temporarily on hold subject to a potential Crime and Corruption Commission investigation with the Treasurer accused of blackmailing the resources sector by the Opposition) .
  9. What economic and job growth initiatives will be announced?  It is hard to see any new announcements in the context of a State Budget under strain but rather the rearticulation of the initiatives announced over the course of the previous few years.  
  10. Are there any items from left field? It’s a safe bet we will not see any asset sales on the agenda but are there any other things to grab our attention.

The framing of this budget is dramatically different to recent years.  The ‘Gods of revenue’ are no longer smiling on Queensland.  The Sunshine State is switching from a 2018-19 budget with revenue receipts cascading in to a 2019-20 budget under strain from only modest revenue growth but with expenditure continuing to grow.

Under this scenario it is hard to see impressive surpluses and huge infrastructure announcements.  My pick is this will be a more austere State Budget with some humble announcements and focus on addressing frontline service delivery issues and assisting Queenslanders in need.  This will all be in the context of the State taking on more debt.

Queensland's Domestic Economic Activity - March Quarter 2019

Queensland's domestic economy grew by 0.4% (trend) and 0.5% (seasonally adjusted) in the March Quarter 2019. Over the past year Queensland's domestic economy grew 1.3% (trend) & 1.4% (seasonally adjusted). Australia is split down the middle NSW, VIC & TAS doing well, SA, QLD & WA not so well. Queensland's domestic economic activity has been easing since late 2017. The 1.3% growth compares to the 5 year average of 0.6%; the 10 year average of 1.8% and the 25 year average of 4.1%

National Minimum Wage and 122 modern awards to rise 3 per cent

QEAS has summarised the Annual Wage Review made by the Fair Work Commission this week.  Please see below.  For the full decision please click here

In summary the FWC determined that it was appropriate to increase the NMW by 3.0 per cent. The new NMW will be $740.80 per week, or $19.49 per hour. This amounts to an increase of $21.60 per week to the weekly rate. 

For the record QEAS predicted a 3.25 per cent increase.  Given the only recent economic data confirming a weakening of the Australian economy, QEASs' prediction is largely consistent with the final decision of 3 per cent made by the FWC.  For QEAS's original blog please click here.  Proposed increases by interested parties to the Annual Wage Review are provided in the below graph.

The decision is less than the average increase over the past nine years which has been $19.50 or 3.2 per cent.

……………………..

The Fair Work Act requires the Fair Work Commission’s (Commission) Expert Panel for annual wage reviews (Panel) to conduct and complete a review of the national minimum wage (NMW) and minimum wages for the 122 modern awards each financial year. 

Around 2.2 million employees or 21.0 per cent of all employees have their wages set by the NMW or by a modern award minimum wage and will be directly affected by this decision. This decision is also likely to affect employees paid close to the NMW or a modern award minimum wage rate and those whose pay is set by a collective agreement which is linked to the outcomes of the Review, as well as workers whose pay is set by individual arrangements which are referenced to a modern award minimum wage rate. 

Both the minimum wages objective and the modern awards objective require the Panel to take into account: 

  • promoting social inclusion through increased workforce participation;
  • relative living standards and the needs of the low paid;
  • the principle of equal remuneration for work of equal or comparable value; and 
  • various economic considerations.

Despite the recent fall in GDP growth, the Australian economy has performed moderately well and the relevant data are all indicative of a strong labour market. Although business conditions have declined from the high levels recorded in the first half of 2018, they remain consistent with trend growth in the economy and the labour market has performed strongly.

As the RBA has recently observed, ‘[although GDP growth has moderated, employment has continued to expand by enough to reduce spare capacity in the labour market over the past year’. The Australian Government expects the economy to grow at its potential rate and to support future increases in employment. The proportion of the working-age population that is in employment is at record levels. 

The prevailing economic circumstances provide an opportunity to improve the relative living standards of the low paid, and to enable them to better meet their needs, by awarding a real increase in the NMW and modern award minimum wages. No party identified any data which demonstrated adverse employment or other effects arising from the previous 2 Review decisions, each of which resulted in real wage increases for NMW and award-reliant employees.

Our overall assessment is that the relative living standards of NMW and award-reliant employees have improved over recent years, although some low-paid award-reliant employee households have household disposable incomes less than the 60 per cent of the median income relative poverty line. 

We have decided to award a lower increase this year than that awarded last year having regard to the changes in the economic environment (in particular the recent fall in GDP growth and the drop in inflation) and the tax-transfer changes which have taken effect in the current Review period and which have provided a benefit to low-paid households. 

We are satisfied that the level of increase we have decided upon will not lead to any adverse inflationary outcome and nor will it have any measurable negative impact on employment. However, such an increase will mean an improvement in real wages for those employees who are reliant on the NMW and modern award minimum wages and an improvement in their living standards. 

We have determined that it is appropriate to increase the NMW by 3.0 per cent. The new NMW will be $740.80 per week, or $19.49 per hour. This amounts to an increase of $21.60 per week to the weekly rate. 

We have also decided to increase all modern award minimum wages by 3.0 per cent. 

We acknowledge that the compounding effect of increases over time may have a cumulative effect which is not apparent in the short term. We will continue to closely monitor this in future reviews. 

The determinations and order giving effect to our decision will come into operation on 1 July 2019. The increases we have determined will take effect from the start of the first full pay period that starts on or after 1 July 2019 in accordance with ss.286(5) and 287(5) of the Act. 

 

QEAS Business Update - Federal Election Result

The following provides a 'one stop shop' on everything you need to know on the recent federal election result and how it might impact you as a business.  
 
The Morrison Ministry and policies announced for business can be found in a special QEAS update here
 
Prime Minister Morrison and the Coalition achieved what virtually all sensible commentators saw as impossible, winning government with a working majority.  The best one-liner that summarises the narrative for the business community is Morrison went to the people of Australia saying, “I can be trusted to manage the economy.  The other guy can’t.”  The business community has certainly responded well to the election result, the ASX 200 is up and anecdotally businesses are silently relieved by the result, particularly the voiding of the ALP’s workplace relations agenda (see link for Coalition policies.
 
Key points that I highlight about the result are:
  • Scott Morrison is deserving of leadership stability and policy cohesion within the Coalition.  The disgraceful last term of office must not be repeated, with focus instead aimed at policy implementation rather than the politicians themselves.
  • To that end, a key measure of success will be the extent to which the Government is able to assert national leadership to promote investment, job creation and broader community prosperity.
  • One of the greatest challenges for the Coalition will be to respond to a slowing economy with the constraint of getting the budget back into the black for 2019-20 without further stalling economic activity.
  • Misses in the policy context for the Coalition were a commitment and action plan to lift national productivity and the development of credible, durable and well-integrated climate and energy policies. Businesses going forward will want sensible solutions to increase wages, drive down energy prices and deal with climate change.
  • The result for Coalition is a very good one in the House of Representatives (78 of 150 seats) but remains problematic in the Senate. It is important that the parliament works constructively with the Government to deliver a stronger budget and economy.  However this is looking unlikely as the Coalition will not have control of the Senate (only a likely 34 of 76 seats) and will have to work with a smaller and more empowered number of cross benchers.
  • Much of the campaign was placing workers against employers and now is the time to end the anti-business rhetoric. What benefits business unmistakably benefits their employees. The election result gives certainty to the business community and I would anticipate business confidence will lift and in turn investment decisions to flow and hopefully employment as well.
  • The LNP won 23 of the 30 seats in Queensland with a swing of 0.8 per cent, picking up both Herbert and Longman. This should be interpreted as Queenslanders will not be told by southerners what our economic direction should be (more on Queensland in the conclusion).
Obviously Adani by default looks to be one of the biggest winners from the federal election result. The implications for the Queensland Government are considerable that I will cover more fully as we approach the State Budget on the 11th June 2019.  In short, the election result also provides another headache for the Queensland Government through Brisbane’s cross river rail being unfunded.  One of the most significant and sobering outcomes will be the realisation by the Queensland Government that to some extent its fortunes are now intertwined with a Morrison Government that has just been given approval by the people of Australia to govern for us all, albeit with a slim margin. These two tiers of government, who have unquestionably not worked well together in the past three years, will now need to.  The federal election result focuses attention on the performance of the Palaszczuk Government who will need to pivot from a minimalist small-target approach to achieving significant economic outcomes prior to the 31 October 2020 state election. 
 
Queensland businesses can now get on with it, knowing that the anti-business and anti-mining agenda is a 'bust' and that there are a number of very good policies that will materially benefit them as listed in the above link.
 
 
 
 
 

Bob Hawke - Architect of 28 years of uninterrupted economic growth

Australia’s 28 years of uninterrupted economic growth can directly be attributed to Bob Hawke, Prime Minister of Australia 1983 – 1991.  His economic reform agenda is unrivalled and characterised by:

  1. Floating what was a bloated Australian dollar thereby making our exporters globally competitive;
  2. Reducing tariff barriers and subsidies and opening the Australian economy to global competition;
  3. Reducing inflation and union strike action through the Prices and Incomes Accords;
  4. Reforming taxation through the introduction of the capital gains tax and fringe benefits tax but also dramatically reducing company tax by 10 per cent;
  5. A substantial privatisation agenda including that of the Commonwealth Bank of Australia and Qantas and in turn promoting greater and fairer competition;
  6. Introducing the Superannuation Guarantee of 3 per cent (now 9.5 per cent) that has led to the accumulation of $2.7 trillion in assets and finance for the Australian economy and property market;
  7. Deregulating Australia’s finance industry through opening Australia to foreign banks and financial institutions; and
  8. Introducing the Higher Education Contribution Scheme (HECS) enabling numerous Australians to go to University who have in turn contributed to our economy.

Australia’s economy is infinitely stronger today because of the vision of Bob Hawke.

Finally my personal favourite memory of Bob Hawke was when we won the America’s Cup in 1983 see here: 

https://www.youtube.com/watch?v=s8mdHO2_Zo8

This for me represents who he was: a charismatic union man at heart in the first sentence and a wise head leading a nation in the second sentence.

 

QEAS Business Update - Federal Election Special

The 18th May 2019 Federal Election is less than one weeks away and the general malaise of the broader community towards politicians has never been greater.
 
This is a dangerous situation as a comparison of policies clearly indicates a lot is at stake for business. It is extremely important that Queensland businesses stay informed and able to compare and contrast what is on offer from the major political parties as part of this Federal Election and without the spin.  
 
QEAS’s role is to provide this information so you can make a considered decision on who will be the best custodian of our country’s economy and finances. 

A full overview of policies impacting business is provided here

Major Party Policy Ready Reckoner

Many of us are frustrated by politics at present, yet elections are a wonderful opportunity to get a politician to commit to doing something useful.  Only time will tell whether the next Government of Australia is about ‘you’ as businesses and ‘us’ as Australians as opposed to ‘them’ as politicians. I will do a post election wrap on what it all means for us once Australia votes.  

The most important union KPI: election results, members or wage outcomes?

As Queensland celebrates the Labor Day holiday and for many the role that unions play in today’s society, I thought I might examine some of the core roles that Unions play for their members.

When considering the role of unions many Queenslanders think of the efficiency and effectiveness of the Australian union movement in campaigning as part of the Federal Election. Indeed this is an integral part of what they do but it is largely in addition to the core role it has of maintaining and improving worker pay and conditions.  One can in theory lead to the other.

The achievements of the labour movement in securing the eight hour working day, collective bargaining, fair and safe working conditions, and decent and fair wages have long been recognised in Queensland by observing Labour Day on the first Monday in May.

Recently the Reserve Bank of Australia took a look at the role unions play in relation to wages growth and the results of this analysis are fascinating.  There are currently three methods of setting wages in Australia: awards, collective/enterprise agreements, and individual arrangements. It is possible for unions to influence the wage outcomes of employees covered by any of these methods, albeit to different degrees. The most direct channel of union influence is via collective bargaining.

Key findings of the RBA analysis included that union membership rates in Australia have declined steadily since the middle of the 20th century and as at 2018, around 15 per cent of wage earners were members of a union.   However despite declining union membership rates, the share of the workforce covered by enterprise agreements negotiated with union involvement has not changed materially over time.

Furthermore and more importantly unions are just as effective in extracting larger wage increases from firms in wage negotiations as they were in the past. The RBA has estimated a ‘union wage growth premium’ of around a one third percentage point per year among private sector enterprise agreements and the size of this ‘union wage growth premium’’ has remained stable despite changes to the industrial relations framework.

Accordingly it can be argued that a more appropriate measure of union influence is the number of workers covered by a union-negotiated enterprise agreement and the level of premium that they yield in negotiating wage outcomes than actual membership rates.  This is unquestionably what unions should be focusing on in highlighting value proposition to potential members.

The fact that the share of the Australian workforce covered by a union-negotiated agreement has remained unchanged but at the same time as the union membership rate has declined suggests that an increasing share of employees in the Australian workforce find it optimal to ‘free ride’ on the union membership of other employees.  Many employees benefit from the work of unions and do not feel compelled to join one.  This is arguably the union movement’s greatest challenge at present.

In conclusion today’s Labour Day holiday falls in the middle of a Federal Election and putting aside the significant role unions are playing in campaigning for the Australian Labor Party their raison d'être of delivering for workers appears to be just as strong today as it did in the past.

The full RBA report is available here.

Federal Election 2019 - Coalition and ALP Policies for Business and Queensland

The Federal Election will be held 18 May 2019.  Elections are a competition of ideas and a wonderful opportunity to get a politician to commit to doing something useful. It is extremely important that Queensland businesses stay informed and be able to compare and contrast what is on offer from the major political parties as part of this Federal Election and without the spin.  Accordingly QEAS will provide its usual policy ready reckoner for your information. Our Queensland Election 2017 example can be found here.

Key election analysis areas will include:

  • Budget management;
  • Economy including employment;
  • General taxes;
  • Business taxes;
  • Red tape reduction;
  • Workplace relations including minimum wages and collective bargaining;
  • Housing;
  • Infrastructure Energy;
  • Climate Change;
  • Training and Education;
  • Manufacturing;
  • Tourism; and
  • Resources sector

Stay tuned 

 

Federal Budget 2019-20 implications for Queensland

 

For a full analysis of the Federal Budget 2019-20 and what it means for Queensland please click here

 

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